The Hindu : House panel for level playing field

Online edition of India's National Newspaper
Friday, Dec 26, 2003

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House panel for level playing field

By Our Special Correspondent

NEW DELHI DEC. 25. A parliamentary committee has called for the Government to provide a level playing field for the capital goods sector in the forthcoming budget and Export-Import policy. It has also urged that the mid-term policy changes, which create a disadvantage for the domestic industry, should be applicable only to prospective contracts.

The Standing Committee on Industry, which tabled its 143rd report in both Houses during the winter session of Parliament has declared that it is not against the globalisation process but at the same time seeks reasonable protection for domestic industries. Similarly, referring to the power projects, it says power cost should not go up in consumer's interest but the capital industry also needs to be protected.

The committee headed by P. C. Alexander has suggested that the duty structure for capital goods industry be rationalised to bring the customs duty to 20 per cent, eliminate countervailing duty altogether and refund terminal excise duty to the domestic suppliers. It has urged that these recommendations be taken into account while doing the budget exercise for 2004-05 and thereby provide a level playing field for the Indian capital goods industry.

Regarding power and fertilizer projects where the domestic industry is the major supplier, the committee has pointed out that if a contract has been awarded and subsequently policy changes are made, the entire contract remains in dispute. "This makes projects very difficult," the committee says. It has therefore recommended that whenever changes are made in the Exim policy, it should be for prospective contracts.

Highlighting the disadvantages to the domestic industry due to mid-term policy changes, the committee recommends that where orders or letters of intent have been placed before March 31, 2000 for power and fertilizer projects, refund of terminal excise duty should be allowed as under the Exim policy of 1999-2000. It has noted that in the present scenario, there are three stake holders with regard to establishment of power projects, namely, the project, revenue department and domestic suppliers. It says the project cost can be reduced if import duties are reduced but in that case there will be an adverse impact on the revenue and domestic suppliers will also be adversely affected. To balance the interests of all parties, if the overall duties, which are now 21.8 per cent, are reduced to single customs duty of 20 per cent, the project cost can come down by 1.8 per cent and the effect of revenue will not be substantial, it has stated.

Besides, it says in view of the proposal of doing away with countervailing duty from the present 16 per cent, the domestic industry will become eligible for refund of terminal excise duty.

The refund of this duty to domestic suppliers is essential as they suffer from other cost disadvantages such as sales tax, infrastructure bottlenecks and higher cost of finances.

The committee has observed that the basic concept of Exim policy was to provide a level playing field between domestic and foreign suppliers. It started from projects funded by multilateral agencies where items were allowed under zero duty to give domestic suppliers a level playing field so they could compete with foreign companies.

Subsequently, however, basic customs duty was brought down from 20 to 5 per cent and countervailing duty was introduced at 16 per cent and terminal excise duty was withdrawn. CVD was the protection given to the domestic industry over and above the 5 per cent customs duty.

Despite this level of protection, the committee has argued that there are inefficiencies and bottlenecks in the system while the domestic industry has to pay various taxes to State governments. They also have legacies of the past in the form of townships, which are social obligations and the cost is `very high'. It thus feels that some balance has to be struck to neutralise the disadvantage faced by domestic industries.

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